Citi's Asia-Pacific co-CEOs Apte and Bird talk shop

Stephen Bird and Shirish Apte have been running Citi's Asia-Pacific region as CEOs since July. Bird was previously North Asia CEO, while Apte served as CEO of Citi's Central & Eastern European region. Some four months into the job, they sit down with FinanceAsia to discuss how they are managing the region and how the year has gone for Citi.

Why did Citi move to having two CEOs for the region?
Apte: The size of the business in Asia-Pacific -- which covers 18 markets across our institutional clients group and consumer banking and cards -- and the importance of its growth to Citi, means it is sufficiently big enough to warrant that level of commitment.

Our appointments were intended to build on the momentum and accelerate the growth and build-out of Citi in this region. It also gives us extra flexibility. There are often days when both Stephen and I are meeting or pitching Citi to clients on the same day in different parts of the region.

Bird: In my previous role I was North Asia CEO and my main focus remains on that geography, while Shirish focuses on South Asia. But the management team in Asia reports to both of us, we run Asia-Pacific as a single region with one P&L.

Our goal is to be the number one pan-Asia banking franchise and that means leveraging our products, technology and people across the entire franchise even more. Our partnership will make this goal more attainable.

As Shirish said, Asia-Pacific is one of our biggest regions globally and viewed as Citi's biggest opportunity globally. Revenues from this region have grown from around $10 billion five years ago to around $15 billion during the past 12 months. The priority for us both is to spend as much time as possible in front of our key clients as well as potential clients, to discuss how Citi can help them with their growth plans. 

How would you describe Citi's year globally so far? What impact has the global story had on your Asian business?
Bird: It has been a year of challenges but the bank has emerged with a clear strategy that plays to our strengths; we have a strong capital base and we have returned to profitability globally.

One of the key changes this year was the decision to run the bank as two operating companies -- Citicorp, which is the strategic core that we are investing in for our future, and Citi Holdings, which includes our non-core assets that do not fit with our long-term strategy but remain very good businesses which we are managing for value, divesting or winding down. The focus now is on continued execution and sustained profitability.

Asia-Pacific resides in Citicorp and our clients understand that the commitment to this region is greater today than at any point in our history. They recognise for example that in a market like China we have not reduced our strategic investments in our partners or the market. Instead we have recruited some new world class investment bankers, opened new branches and introduced new services such as improved mobile banking services and the launch of debit cards.

We look to how our clients have responded to judge how they view any impact from the global issues. We have seen our client deposits reach record levels in the region this year while we have added more than a half a million new credit card accounts. 

Apte: We made it a priority to talk through the global issues we are facing with our clients so they understand how we have addressed them and to clearly show them the strength of our franchise in Asia-Pacific. Our clients and regulators understand that Citi is now well capitalised.

The new operating structure also underlines that Asia-Pacific is very much core to our future strategy and growth plans.

During 2009 Citi led a number of key transactions in Asia-Pacific, including the first IPO, the first corporate bond, the first high-yield bond and the first rights issue. These were important transactions that re-opened markets and underlined the importance of having a global distribution platform that clients want to use to reach as many investors as possible.

What are some of the areas in the business that you see as offering the greatest potential for growth in Asia?
Apte: More Asian companies are turning to the capital markets and pursuing M&A opportunities, which will lead to a greater deal flow. There has also been a pick-up in activity away from the big markets such as China and India, with rights issues in Indonesia and IPOs in Malaysia and Bangladesh for example. Having established businesses in these markets means we are well positioned to capture these opportunities.

I want to also highlight the increase in investment from MNCs [multinational corporations] in the region. Citi works with more than 9,000 subsidiaries of MNCs in Asia-Pacific. This segment has grown significantly with more than 100% growth in revenues during the past four years. It highlights the importance of our global franchise to our clients.

Bird: The region's key economic and demographic drivers play to our key strengths: Asian economies are growing two to three times faster than developed markets and trade volumes in the region reached $9 trillion in 2008. Asia-Pacific is also home to 3.4 billion people, more than half of the world's population, and includes a fast growing middle class as well as millions of 'unbanked' people who are joining the formal banking system. 

At the other end of the spectrum, there is a segment who are saving and planning for their retirement and who are demanding pension, wealth management and insurance products.

Perhaps the most compelling statistic of the opportunity in this region is the estimate that the financial services wallet is close to $1 trillion. There is plenty of runway for further growth. 

What are some of the challenges you see in your businesses and for your clients?
Bird: On the macro front, the possibility of a double dip recession in the US is a concern. Asia's capital markets may have de-coupled but the jury is still out on whether Asian economies have decoupled.

The use of derivatives is also being questioned by many Asian companies, but they are vital for risk management. Companies that actively hedge still trade at premiums to those that do not. One of the challenges is to further educate clients on the benefits of hedging, given the continued volatility in commodities markets.

Apte: As Stephen said, market stability is key. Stable, rational markets give corporate clients greater confidence to issue debt or IPO, for asset managers to buy equities or for consumers to invest in the markets as some examples. 

One of our priorities is to ensure we continue to have a robust risk management function. Corporate defaults are on the rise globally and in some Asia-Pacific countries we are seeing a pick-up in corporate bankruptcies. Our model gives us in-country, experienced risk management experts who, by being on the ground, give us insight into ensuring we have the appropriate risk/return profile for all our businesses. 

Your competitors have been buying banks in Asia. Are you looking to buy any bank in the region?
Bird: We looked at the recent assets in the market but there was nothing that fit with our footprint, as there was too much overlap. Our focus remains on organic growth through further expansion of branches and new products and services across our 18 markets. We will naturally continue to look at, and consider, opportunities for acquisitions and investments as they arise and whether they fit with our growth strategy. 

Apte: Our franchise in Asia-Pacific has been built up over more than 100 years of expansion largely by organic growth, but we have also acquired domestic banks in for example South Korea, and more recently Taiwan, where we have seen a clear opportunity that fits with our growth plans. Many of our rivals are in the process of building out their network and brand through acquisitions. Our focus is on leveraging the investments we have made to their full potential. 

What's your Christmas wish for Citi in one sentence?
Apte: That Stephen and I have this unique opportunity to continue to build Citi in this region. 

Bird: To build on the progress made in 2009 into 2010 and execute further on our strategy globally and report continued growth to the benefit of all our shareholders. Seeing Manchester United catch up with Chelsea and be at the top of the Premiership on New Year's Day would be an added bonus.